Military Expenditure and Economic Growth in Middle Eastern Countries: A Dynamic Panel Data Analysis

Abstract

Defence expenditures have both costs and benefits to the economy. The costs of defence expenditures are mainly emphasized as opportunity costs. On the other hand, defence spending may have growth-promoting potential benefits: a rise in defence spending may result in a higher aggregate demand, production and employment. This paper examines empirically the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time-period 1989-1999. The relationship between military expenditure and economic growth is investigated by using cross-section and dynamic panel estimation techniques. Empirical analysis indicates that military expenditure enhances economic growth in the Middle Eastern countries and Turkey as a whole.Military expenditure, Economic growth, Defence economics, Dynamic panel data analysis,

Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan

“…These findings are consistent with the existing literature such as Khilji and Mahmood (1997), Atesoglu (2002), Karagol and Palaz (2004), Smith and Tuttle (2008), Tang (2008) and Keller et al (2009). The estimated coefficient of government non-military spending is showing positive impact on economic growth supporting the views of Halicioglu (2004), Yildirim et al (2005) and Wijeweera and Webb (2009). The inverse relationship is also witnessed between real interest rate and economic growth, and is consistent with findings of Halicioglu (2004).…”

“…It is found that a 5% increase in non-military expenditures raises economic growth by 0.649%. The findings are consistent with existing defence economics literature including Atesoglu (2002) for the USA, Halicioglu (2004) for Turkey, Yildirim et al (2005) for Middle Eastern countries, Tang (2008) for Malaysia and Wijeweera and Webb (2009) for Sri Lanka. Finally, real interest rate is inversely correlated with economic growth.…”

“…The seminal work of Benoit (1973Benoit ( , 1978 has spurred an increasing attention on the economic impact of defence spending with the relevant literature steadily expanding ever since (inter alia : Chowdhury, 1991;Dakurah et al, 2001;Sezgin, 2001;Atesoglu, 2002;Dunne et al, 2002;Abu-Bader and Abu-Qarm, 2003;Cuaresma and Reitschuler, 2004;Halicioglu, 2004;Bas, 2005;Yildirim et al, 2005;Kollias et al, 2007;Lee and Chen, 2007;Özsoy, 2008;Wijeweera and Webb, 2009). Broadly speaking, the findings are mixed and inconclusive with results depending on the country or sample of countries, the time period or the methodology used (for a survey of the findings and the issues see Dunne et al, 2005).…”

“…Such studies include Biswas and Ram (1986), Ward et al (1991), Yildirim et al (2005) 106 M. SHAHBAZ ET AL.…”

“…Broadly speaking, the findings are mixed and inconclusive with results depending on the country or sample of countries, the time period or the methodology used (for a survey of the findings and the issues see Dunne et al, 2005). In a number of cases, findings suggest that defence expenditures stimulate economic growth through the demand stimulation channel (inter alia: Fredericksen and Looney, 1982;Stewart, 1991;Ward et al, 1991;Dunne et al, 2001;Atesoglu, 2002Atesoglu, , 2009Yildirim et al, 2005). Military expenditures may also lead to improvements in infrastructure while a similar positive effect is also postulated when it comes to the labour force and the technical skills acquired during military training that can then be useful endowments for the civilian life of soldiers once decommissioned (MacNair et al, 1995).…”